In what way(s) could the high economic growth have contributed to the observed changes in poverty and inequality in Vietnam?
Economic inequality and poverty levels increase or decrease with changes in GDP. For example, when countries are restructuring or are in the initial stage of economic development, inequality increases. On the other hand, when countries have restructured and have strong economic systems, economic inequality decreases (Smith, 2009).
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In Vietnam, levels of poverty and inequality decreased between the years 1993 and 2002. In 1993, the Income share held by 20% of the population was 44, while that held by 20% of the population was 8. This changed in 2002 when the Income share held by the highest 20% increased to 46 while that held by the lowest 20% decreased to 7. There was also a change in the percentage of the population that lived on or below the poverty line. In1993, 60% of the population was living on or below the poverty line through this reduced to 40% in 2002.
There are several things that can be attributed to the high economic growth experienced in Vietnam. These include
- Productivity increase in agriculture
- Productivity increase in industry & service
- Creation of new industry & service jobs (1998-2001)
Productivity increase in agriculture
During the period 1993-2002, there was early land reform in Vietnam, and this led to the egalitarian distribution of land and encouragement of the family economy. This also led to an overall increase in productivity, which translated to a higher income for the population. Using the extra income, people were able to raise their living standards and thus the noticeable reduction in poverty level and economic inequalities. With the Doi Moi Reforms, farmers in the rural sides of the country were awarded more rights on land and free markets. Through this liberalization, farmers were encouraged to produce more, and this increased their income. The free market enabled farmers to sell their produce at profitable levels, and this translated to improved standards of living and reduced economic inequalities between people living in the rural sides and those living in the urban centers (Taylor, 2004).
Creation of new industry & service jobs (1998-2001)
From 1998-2001, there was an average increase in employment. This meant that during the period, people had an income and, therefore, could afford to raise their living standards. There was also the movement of people from rural areas into the city. They provided labor to the industries, and thus the redundant workforce from the rural areas became productive and helped to increase the GDP and ultimately reduce the inequality and poverty levels. The Doi Moi reforms that saw the liberalization of the labor market also meant that private employers could hire more workers, and this increased outputs as well as GDP (Hyun, 2005).
Productivity increase in industry & service
From 1992-1997, Vietnam’s GDP grew more than employment. This meant that there was productivity increase and this accounted for the high inequality between the income share held by the highest 20% (mostly who own or work the factories and industries, and live in the cities) and the income share held by the lowest 20% (mostly farmers and people living in rural areas) (Taylor, 2004).
As noted above, economic inequalities and poverty levels are greatly affected by prevailing economic situations and policies. When countries restructure and streamline their policies, economic growth is experienced, and the economic inequalities and poverty level decrease.
Hyun (2005). Vietnam: jobs, growth and poverty, UNDP One-Pager. Web.
Smith, S.C. (2009). Economic development. Harlow: Addison-Wesley.
Taylor, P. (2004). Social inequality in Vietnam and the challenges to reform. Singapore: Institute of Southeast Asian Studies